Chinese GDP set to cause volatility

19 October, 2016

It's a big day for the Australian markets as Chinese data is set to put pressure on the AUDUSD and also the NZDUSD, but the main focus will most certainly be around the AUDUSD and how it handles the data which is due out today. GDP y/y has always been the cornerstone of how the Chinese economy is performing and the market is looking for a flat result of 6.7%. In recent times the GDP has fallen but it is still one of the best forming in the modern world and a slowdown had been predicted for some time. We also have Industrial Production due out and the market is expecting a slight up lift here, despite recent worries that the industrial sector may be struggling. Regardless of it all Australia's largest trader partner is China, which in turn leads to the likelihood of a large amount of volatility for the AUDUSD and other minor AUD pairs. For me I think the market is looking for a positive result, as the US economy has been picking up and this will have a flow on effect to the Chinese economy. The jitters after the Brexit are also starting to subside and Chinese exporters will be looking optimist around this.

So for the charts the AUDUSD has been bullish in the long run, but has come under renewed pressure from the bears in recent times, as they look to punish the AUD on the back of its weak economy and underemployment issues which I noted yesterday. On the daily chart if we look at the high point from the 4th of August we can see a clear bearish trend in the market when it comes to previous highs and today's touch on the dynamic resistance was no different. We've failed to see sustained pressure on this level and to me it feels like the Chinese data may be the catalyst which finally sees a strong push through for the AUDUSD if we see a strong positive result. Certainly it would be a reversal of a trend which has been in play since August.  If we do see a strong drop on the charts I would anticipate support around the 0.7532 region, but it would be hard going for it to break through completely given the long term bullish trend line which has been in play for some time.

Finally, with all the hype around the AUD and Chinese data the UK is also set to have a big day with the GBPUSD expected to move in the wake of retail data coming out. For me the GBPUSD has come under pressure and some are still saying it's overvalued. One thing is clear and that is any weak retail data will lead to heavy selling in the GBPUSD. While we might see a welcome boost and the GBPUSD even look to break the 20 day moving average,  it feels like it may struggle to sustain that given the amount politicians are talking about Brexit and how easily the market is swaying at present. 

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